Senior High School

Fundamentals of Accountancy Business

and Management 2
Quarter I- Module 1:
Statement of Financial Position

Writer:
VIENNAH MARIE M. BUSTOS
SST II San Vicente San Francisco HS,
Macabebe
Editors:
JANE P. VALENCIA, EdD – Math/ABM Supervisor
CHAIRMAN
BETHEL GRACE M. GUIAO- Teacher-III

NESSA B. DIMALANTA Teacher-II

 What I Need to Know

This module was designed and written with you in mind. It is here to help you master the
Statement of Financial Position (SFP). The scope of this module permits it to be used in many
different learning situations. The language used recognizes the diverse vocabulary level of students.
The lessons are arranged to follow the standard sequence of the course. But the order in which you
read them can be changed to correspond with the textbook you are now using.

The module is about:

Lesson 1.1 – The Elements of the Statement of Financial Position

After going through this module, you are expected to:

1. Identify the elements of the SFP and describe each of them;

What I Know

Classification of Accounts:

Classify the following accounts whether they are asset, liability or equity accounts. Check the
appropriate box. Write your answers on a separate sheet of paper.

Account Asset Liabilities Owner’s Equity

1. Income tax Payable /

2. Trade Accounts
Receivable

3. Trademark

4. Bonds Payable

5. J. Bustos, Capital

6. Inventories

7. Property, Plant and

Equipment

8. Mortgage Payable

9. Salaries Payable

10. Ordinary Shares

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 Identify, decribe and classify the
Elements of Statement of Financial
Lesson 1:
Position
Before going further into this module, please recall all the accounting elements or accounting terms
that you have encountered in your study of Accounting 1 as it will serve as a gauge on how well you
know the accounting elements especially the ones found in the Statement of Financial Position or the
Balance Sheet

What’s In

Can you still recall the following terms?

• Accounting Equation
• Assets
• Liabilities
• Equity
• Single/Sole Proprietorship Business

Can you identify the normal balances of assets, liabilities and equity?

What about the different financial statements you had prepared as we went through the accounting
cycle?

This lesson will deal on the elements and the classification of the elements in the Statement of
Financial Position (SFP).

Not es t o t he Teacher

Let us be ready to define terms and give examples to make

learners recall the above terms. The learners might not be
able to remember immediately the terms under
assets/liabilities due to the time gap between Grade 11
(ABM 1) and Grade 12 (ABM 2).

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 What’s New

Activity 1: Matching Type (Write your answer on a separate sheet of paper)

_____ 1. Accrued Expense a. the owner’s residual interest

_____ 2. Assets b. rent paid in advance

_____ 3. Equity c. resources owned by the company

_____ 4. Liability d. an expense that has been incurred but not yet paid
_____ 5. Prepaid Rent e. obligation payable to another entity

What is It
STATEMENT OF FINANCIAL POSITION
The Statement of Financial position is also known as the balance sheet. It includes the
amounts of the company’s total assets, liabilities and owner’s equity which in totality provides the
condition of the company on a specific date. (Haddock, Price, Farina 2012)
The Statement of Financial Position usually consists of the following types of accounts:
a. Permanent Accounts
b. Temporary Accounts
c. Contra-assets Accounts

a. Permanent Accounts These are the accounts that you see in the SFP. Permanent accounts are
permanent in a sense that their balances remain intact from one accounting period to another.
(Haddock, Price, & Farina, 2012)

Assets, liabilities and equity accounts are permanent accounts. They are called permanent accounts
because the accounts are retained permanently in the SFP until their balances become zero.

b. Temporary Accounts

Temporary accounts are found in the Statement of Comprehensive Income (SCI). Temporary
accounts unlike permanent accounts will have zero balances at the end of the accounting period.

c. Contra-assets accounts

Contra-asset accounts are accounts that are presented under the assets portion of the SFP but are
reductions to the company’s assets. These include Allowance for Doubtful Accounts and
Accumulated Depreciation.

Allowance for Doubtful Accounts is a contra asset to Accounts Receivable. This represents the
estimated amount that the company may not be able to collect from delinquent customers.

Accumulated Depreciation is a contra asset to the company’s Property, Plant and Equipment. This
account represents the total amount of depreciation booked against the fixed assets of the
company.

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1.1 ELEMENTS OF THE STATEMENT OF FINANCIAL POSITION:

I. ASSETS
Assets are what the business owns. They are the resources controlled by the entity as result
of past events and from which future economic benefits are expected to flow to the entity.

II. LIABILITIES
Liabilities are what the business owes or the claims against the business. They present
obligations arising from past events, the settlement of which is expected to result in an outflow from
the entity of resources embodying economic benefits {assets}.

III. EQUITY OR OWNER’S EQUITY

Equity or owner’s equity is what the business is worth. It is the residual interest of the owner
in the business (assets minus liabilities).

For a single proprietorship and a partnership, the words “owner’s equity/partner’s equity”
are used on the balance sheet. For a corporation, the words “stockholder’s equity” are used.
Examples of stockholder’s equity accounts include: common stock, preferred stock, paid-in capital
in excess of par value, paid-in capital from treasury stock, retained earnings, accumulated other
comprehensive income etc.

1.2 CLASSIFICATION OF THE ELEMENTS OF THE STATEMENT OF FINANCIAL POSITION

CLASSIFICATION OF ASSETS:

A. CURRENT ASSETS Current assets are assets that are expected to be converted to cash, sold or
consumed during the next 12 months or within the normal operating cycle of the business if it is
longer than 1 year.

Normal Operating Cycle The normal operating cycle is the period it takes for an entity to buy its
inventories, sell them and collect the related receivables.

Examples of Current Assets:

1. Cash and Cash Equivalent Cash includes bills and coins on hand, bank accounts and
operating funds/working funds (e.g. petty cash fund) Cash Equivalent is a short-term,
highly liquid investments that is readily convertible to known amounts of cash and which is
subject to an insignificant risk of changes of value.
2. Trade Accounts Receivable Trade accounts receivable is an amount owed by customers for
goods bought or for services received from the entity.
3. Notes Receivable A note receivable is an asset evidenced by another party’s written promise
that entitles you the receive cash in the future. It has three elements – the principal amount,
the maturity date and the corresponding interest rate.
4. Interest receivable Interest receivable is the collectible amount due to the cost of borrowing
money.
5. Financial Assets at Fair Value through Profit or Loss (FAFVPL) Financial Asset at Fair
Value through Profit or Loss (FAFVPL) is conventionally called trading security. It is either a
debt or an equity instrument of another entity by the reporting entity.
6. Inventories There are three items that are considered as parts of inventories: a. Finished
goods are the goods for sale in the normal course of the business. b. Work in progress or
goods in process includes goods in the process of production. c. Raw materials includes
materials and supplies to be consumed in the production process.
7. Supplies and Other Prepaid Assets Supplies usually comprises office supplies to be
consumed by the business. Other Prepaid Assets A common example of prepaid asset is the
prepaid rent.
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B. NON-CURRENT ASSETS

Examples of Non-current Assets:

1. Property, Plant and Equipment Property, Plant and Equipment includes fixed assets used
in the normal operating cycle or production of the business. The most common examples are
land and building being used by the company, manufacturing plants, manufacturing
equipment, vehicles, furniture and fixtures, and leasehold improvements. They are
considered as long-lived assets, therefore they depreciate over their estimated useful life
except for land since it deemed with perpetual benefit. They are presented in the SFP after
deducting the related accumulated depreciation.
2. Intangible Assets Intangible Assets are assets meeting the definition of an asset but without
physical substance. The most common examples are trademarks for brand names, patents
for inventions and copyrights for artistic/literary works
3. Investment Properties Investment Properties are long-lived assets not used in production,
intended to be leased out or for long-term asset appreciation. An example is a piece of land
with a building intended to be leased out to renters and will generate rental income for
the entity.
4. Biological Assets – living plants or animals held by the business for resale or breeding
Examples are sheep, trees in plantation, dairy cattle, pigs, bushes, figs and fruit trees.

CLASSIFICATION OF LIABILITIES:

A. CURRENT LIABILITIES Current liabilities are debts that are due to be paid within one
year or within the entity’s operating cycle if the cycle is longer than a year.

Examples of Current Liabilities

1. Trade Accounts Payable

A trade accounts payable is an unwritten promise to pay a supplier for an asset purchased or for a
service rendered.

2. Notes Payable A notes payable is a formal written promise to pay a supplier or lender a specific
sum of money at a definite future time.
3. Interest Payable An interest payable is related to a note payable since it is considered as cost for
borrowing money. Interest are computed as principal amount multiplied by time factor and interest
rate.

4. Other Accrued expenses An accrued expense is an expense that has been incurred but not yet
paid in cash. The most common examples of accrued expenses are salaries, rent and utilities.

5. Income Tax Payable Income Tax Payable is composed of taxes due to the government within one
year. The calculation of income tax payable is according to the prevailing tax law in the Philippines.

B. NON-CURRENT LIABILITIES Non-current liabilities, also known as long-term liabilities are

debts or financial obligations that are expected to be paid after a year.

Examples of Non-Current Liabilities

1. Long-term Debts Long-term debts represent bank loans as a source of financing for the entity.
They can be in a span of five years to twenty-five years.

2. Bonds Payable Bonds payable are a form of long-term debt usually issued by corporations and
the governments. The issuer to the bond makes a formal promise/agreement to pay interest usually
every six months (semi-annually) and to pay the principal or maturity amount at a specified date
some years in the future.

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 What’s More

Activity 1: Indicate which of the following are current assets and which are non-currents assets. (1
point each number)

_______________ Prepaid Rent _______________ Building

_______________ Furniture _______________ Accounts Receivable

_______________ Merchandise Inventory _______________ Cash

_______________ Note Receivable (due within _______________ Note Receivable (due one year
after one year)

Assessment 1 – Compute for the following and show the solution (5 points each
number)
1. Vivien’s Enterprises has P2,600 petty cash fund, P49,326 cash in bank and P16,806 worth of
merchandise inventory. How much is the company’s total current assets?
2. Joshua’s Machine Shop has current assets amounting to P140,000 and non-current assets
amounting to P320,000. How much is the company’s total assets?

Activity 2: Match Column A with Column B. Write the correct letter on the space
before the number in Column A. (2 points each number)
Column A Column B
1. A liability that is a contract of the a. bonds payable
indebtedness sold to certain individuals.
2. A liability that is an expense incurred but is b. interest payable
not yet paid

3. A liability that is evidenced by a promissory c. notes payable

note
4.A liability that is related to note payable and it d. other accrued expenses
is the cost of borrowing money.

5.A liability which is an open account relating to e. trade accounts payable

purchase of goods and/or raw materials

Assessment 2 - Solve for the following and show the solution (5 points each number)
1. Vivien Enterprises has a total liability of P1,338,000; Accounts Payable – Trade of P850,000;
Accounts Payable – Others of P330,000 and Taxes Payable of P20,000. How much is the company’s
non-current liabilities?
2. Blue Lane Company is owned by Joshua Bustos has P2,650,000 worth of equipment; P1,200,000
worth of current liabilities; P823,000 worth of current assets and P138,000 with of Loans Payable.
How much is the equity of Joshua Bustos?

Activity 3
Classification of Accounts: Classify the following accounts whether they are asset, liability or
equity accounts. For asset and liability accounts classify if they are current or non-current. (1
point each number)

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Account Element Classification

1. Income Tax Payable 11. Bills and Coins on Hand

2. Trade Accounts Receivable 12. Investment properties
3. Trademark 13. Preferred share
4. Bonds Payable 14. Trade Accounts Payable
5. J. Bustos, Capital 15. Utilities payable
6. Inventories
7. Property, Plant and Equipment
8. Mortgage Payable
9. Salaries Payable

10. Ordinary Shares

Assessment 3 – Compute for the following and show your solution (10 points each number)

1. Vivien Enterprises had the following accounts at year end: Cash-Php150,000, Accounts Payable-
Php50,000, Prepaid Expense-Php80,000. Compute for the company’s current assets.

2. Blue Lane Company’s Accounts Receivable amounted to Php 380,000. Prepaid Expense and
Unearned Income totaled Php 40,000 and Php 25,000 respectively. Cash balance amounted to Php
120,000 while Accounts Payable and Inventory totaled to Php 30,000 and Php 20,000 respectively.
How much is the company’s current assets? Current liabilities?

What I Have Learned

Kindly fill-in the blanks based on your understanding of the previous lessons:

The __________(1)__________ lists the business’s assets, liabilities and equity. It reflects the financial
standing of a __________(2)__________ in a given period.

A/An __________(3)__________ is defined as a resource controlled by the enterprise as a result of past

events and from which future economic benefits are expected to flow to the enterprise. Assets are
classified as current and __________(4)__________ . For an asset to be classified as current, it must
be realized, sold or consumed within __________(5)__________ months or within the company’s
normal operating cycle whichever is longer.

A liability is defined as a/an __________(6)__________ obligation arising from past events; the
settlement of which is expected to result in a/an __________(7)__________ from the entity’s assets.
Liabilities are classified as __________(8)__________ if the entity has no unconditional right to defer
settlement for at least 12 months, otherwise it is non- current.

The last element of the Statement of Financial Position is the __________(9)__________ . It is the
residual interest of the owner in the business. The total amount of the assets must equate to the
total amount of the __________(10)__________ and owner’s equity combined.

What I Can Do

Compute for the following and show your solutions (5 points each number)

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1.If the company’s assets are Php58,000 and its liabilities Php23,000, then the owner’s equity is
____________________.

2.At the end of the first month of operations for Joshua Delivery Service, the business had the
following accounts: Accounts Receivable, Php1,600; Prepaid Insurance, Php800; Equipment,
Php40,300 and Cash, Php38,860. On the same date, Joshua owed the following creditors: Aethan’s
Supply Company, Php15,000; Jayden’s Equipment, Php8,500.The total current assets for Joshua’s
Delivery Service are ____________________.
3. At the end of the first month of operations for Joshua Delivery Service, the business had the
following accounts: Accounts Receivable, Php1,600; Prepaid Insurance, Php800; Equipment,
Php40,300 and Cash, Php38,860. On the same date, Joshua owed the following creditors: Aethan’s
Supply Company, Php15,000 (due in 6 months); Jayden’s Equipment, Php8,500 (due after 2
years).The current liabilities for the Joshua’s Delivery Service is/are ____________________.

4. If during the year total assets increase by Php80,000 and total liabilities decrease by Php18,000,
by how much did owner's equity increase/decrease?

Assessment

I. Indicate the proper classification of the items listed below. Write only the letters of the
correct answer before each number and refer to the following classifications below:

a. current asset b. non-current asset c. current liabilities d. non-current liabilities e.

owner’s equity
1. Accounts Payable 9. Income Tax Payable
2. Accrued expenses 10. Inventory
3. Accrued Interest on Notes Payable 11. Investment in Bank
4. Alex, Capital 12. Lordinel, Capital
5. Bonds Payable 13. Machinery
6. Cash and Cash Equivalents 14. Patent
7. Furniture and Fixture 15. Petty Cash Fund
8. Prepaid Insurance

II. Supply the missing amounts to satisfy the basic accounting equation. (2 points
each number)
Situation Assets Liabilities Owner’s Equity
A ? 55,000 180,000
B 450,000 ? 265,000
C 330,000 155,000 ?
D ? 250,000 300,000
E 600,000 ? 370,000

How did you find the activity? How did you compute the missing amount in the table? Give the
equation you used to come up with the correct amount.

Additional Activities

Below is the post-closing trial balance of Lorvien Accounting Firm for the fiscal year ended
December 31, 2019. Compute and answer the following questions:

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Assessment II What I have What's More What I Know
learnedStatement of Activity 2 1. Liability
1. 235,000 Financial Position
1. a 2. Asset
2. 185,000 3. Asset
1. Business/entity/ 2. d
3. 175,000 3. c 4. Liability
company 4. b 5. Owner’s Equity
4. 550,000 2. Asset 5. e 6. Asset
5. 230,000 3. Non-current Assessment 2 7. Asset
Additional Activities 4. Twelve 8. Liability
5. Present 1. 138,000
2. 2,135,000
9. Liability
1. 210,000 6. Outflow 10. Owner’s Equity
7. Current What’s new
2. 140,000 Activity 3
8. Equity/owner’s
3. 350,000 equity 1. Liabilities-current 1. d
4. 200,000 9. Liabilities 2. Asset-current 2. c
What I can do 3. Asset-non- 3. a
5. 350,000 current 4. e
1. 35,000 4. Liabilities-non 5. b
2. 41,260 current
5. Equity
What’s more
3. 15,000
4. 98,000 6. Asset-current
7. Asset-non- Activity 1
current
Assessment I 8. Liabilities-non- 1. Current
current 2. Non-current
1. C 11.b 9. Liabilities-current 3. Current
2. C 12. e 10. Equity 4. Current
3. C 13. b 11. Asset-current 5. Non- current
4. E 14. b 12. Asset-non- 6. Current
5. D 15. a current 7. Current
6. A 13. Equity
14. Liabilities-current
8. Non-current
7. B Assessment 1
15. Liabilities-current
8. A Assessment 3
9. C 1. 68,732
10. A 1. 265,000 2. 460,000
2. 560,000/55,000
Answer Key
350,000 350,000
150.000 Lorvien Capital
8,000 Interest Payable
40,000 Bonds Payable
70,000 Notes Payable
82,000 Accounts Payable
140,000 Office equipment
30,000 Prepaid Insurance
10,000 Supplies
90,000 Accounts Receivable
80,000 Cash
Credit Debit Account Name
December 31, 2019
Post-Closing Trial Balance
Lorvien Accounting Firm
5. How much is the total liabilities and owner’s equity of Lorvien Accounting Firm?
4. How much is the total liabilities of Lorvien Accounting Firm?
3. How much is the total assets of Lorvien Accounting Firm?
2. How much is the total non-currents assets of Lorvien Accounting Firm?
1. How much is the total current assets of Lorvien Accounting Firm?
References

Teaching Guide for Senior High School – Accountancy, Business and Management 2
• Fundamentals of Accountancy, Business and Management Volume 1 By: Ma. Elenita Balatbat
Cabrera MBA MBA CPA CMA

• Fundamentals of Accountancy, Business and Management: A Textbook in Basic

Accounting 2 By: Solita A. Frias
Erlinda C. Pefianco, Ed. D (Project Director)
• Fundamentals of Accountancy, Business and Management Volume 2 By: Josefina L. Beticon
James Cristopher D. Domingo Fermin Antonio D.
Yabut – Authors Ma. Gina T. Manaligod

Development Team of the Module

Writer: VIENNAH MARIE M. BUSTOS - SAN VICENTE SAN FRANCISCO HS

Editor: JANE P. VALENCIA, EdD – EPS – Mathematics
Reviewer: Bethel Grace M. Guiao/ Nessa B. Dimalanta
Illustrator: VIENNAH MARIE M. BUSTOS - SAN VICENTE SAN FRANCISCO HS
Layout Artist: VIENNAH MARIE M. BUSTOS - SAN VICENTE SAN FRANCISCO HS

Language Reviewer:

Management Team

ZENIA G. MOSTOLES, EdD, CESO V, Schools Division Superintendent

LEONARDO C. CANLAS, EdD, CESE. Asst. Schools Division Superintendent
ROWENA T. QUIAMBAO, CESE, Asst. Schools Division Superintendent
CELIA R. LACNALALE, PhD, CID Chief
JANE P. VALENCIA, EdD, Education Program Supervisor, Mathematics
JUNE E. CUNANAN, Education Program Supervisor/ Language Editor
RUBY M. JIMENEZ, PhD., Education Program Supervisor, LRMDS

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